The VAT regime in the region will have considerable impact on the business operations and profitability. Companies dealing in goods and services that attract the tax must understand and prepare for the implications. Similarly, entities that import goods or transact with Zero-Rate or Tax Exempt entities must, at an early stage, consider the impact of VAT.
Group of companies with operations in other GCC countries must closely examine the impact of intra-group and cross-border transactions. While there is a unified VAT agreement across GCC, each member state has the right to enact its own laws within the broad framework. These different treatments have to be understood.
VAT is likely to affect business in the following areas:
- Product pricing and profitability
- Cash flow funding for differences in payment and refunds
- Transaction and reporting systems
- Contracts relating to sales and procurement
- Organization training
A very preliminary thing to do is to start mentioning the clause – Taxes as Applicable are extra – in all quotations and contract negotiations. In fact, companies should review long-term contracts and negotiate with customers to amend the terms to include the taxes.
Get Ready for:
- Invoices with Tax
- Filing of Returns
- Maintaining Records
Invoicing with Tax
Hitherto most business did not have to account separately for tax and hence the invoicing was fairly simple and straightforward. Introduction of VAT will require the re-haul of the invoicing as well as the tax accounting modules in the existing software. Businesses will also have to record the supplier bills and their VAT registration number.
An accounting system consists of
- Rule Engines
The impact of VAT one each of these modules has to be ascertained by the IT team and discussion held with vendors for making modifications.
Filing of Returns
The accounting system will have to automate the computing and reporting of input credit and output liability. In most probability each country will have a portal for filing returns electronically using pre-defined formats. The IT systems will have to be modified to prepare the digital files for uploading to the government portals
The law will specify the period for keeping the records and these records will have to maintained for all transactions including the changes in master data. The IT system will also have to accommodate the recording of refunds and claims that may have happen in the future during audit.
Getting Ready for VAT?
In the early phase, it makes eminent sense to engage a professional tax consultancy firm to help in preparing for VAT and guide your firm through the entire process.